Thursday, March 26, 2009

Lots of Clues

The news stories of yesterday and today have lots of clues that the decline caused by last fall's panic might be over. Existing home sales increased. Durable goods orders increased. From the past weekend, multiple bidders competed for California homes at the new, low prices. All that is news from the "real" economy.

Meanwhile, reports that short sellers actually increased their positions in recent weeks was quite intriguing. And the ideologues and marionettes of the short sellers are out in force claiming great benefits and little harm from bear raids. Or that such don't exist. One would think the Soros article yesterday would shut them up, but no, the WSJ has another silly piece today. WSJ Online: "The short-sellers probably saved us five to 10 years of poor bank earnings, writes Andy Kessler" What a dope ! They caused a panic that led to a few million people losing their jobs and destroyed a few major financial institutions. I suppose Andy Kessler would write that the Vikings invigorated Europe by looting the monasteries.

Ideology can certainly blind people to facts.

Last week's analysis in this blog on the sleazy role of AIG in the financial markets got proof in today's WSJ Online.

"Banque AIG enabled AIG to generate revenue by helping European banks lower the amount of capital they are required to hold to protect against losses on assets such as mortgage and corporate loans. ...

"In the event of a default, European banks that have done these trades with AIG could be forced to take back responsibility for billions of dollars in assets. That could require them to raise billions of dollars in capital, AIG has said.

"In May 2007, a British executive in the financial-products office in London told investors: 'For the European banks and the Asian banks, this is very much a regulatory capital arbitrage business. By structuring their businesses, whether it's their mortgage lending or their corporate loans into these sorts of trades and tranching the risk up, they're able to significantly reduce the capital they have to hold against their portfolios.' "

It was all just a scam to beat the sleepy or compromised regulators.

Markets

I made some sales in Obama Fund yesterday near the early highs of the day. Obama Fund are at 150% long and I reduced it to about 120% long. I'll reload on a serious dip. Sales: all of GE and FCT; 1/2 of MS, FCX, MT, X; 1/3 of CETV, CAB. All those positions had received had adds much lower, so were a big large. I own more GE in Fido Fund, so just chucked the Obama Fund piece.

By the way, the price of copper is over $1.80 this morning.

Word of the Day

"Monkeyshine" - noun [$10]; US Colloquial, a Mencken word.Monkeyshine = monkey tricks or monkey business, meaning mischief.Sentence: Monkeyshine of beefer short sellers is hazardous to the jobs of the common man.

A parade of the mathematically innumerate business writers (and even worse headline writers!) continue to misread data. The latest evidence? New Home Sales.

After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes.

No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved.

Why did the media report this as positive? If you only read the headline number, you saw a positive datapoint: February was plus 4.7% over January.

To get the the facts, you need to read below the headline. In the present case, it wasn’t the seasonality factor that was confusing, it was the “90-percent confidence intervals” — or as it is more commonly known, the margin of error.

Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±18.3%)* above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.

The median sales price of new houses sold in February 2009 was $200,900; the average sales price was $251,000. The seasonally adjusted estimate of new houses for sale at the end of February was 330,000. This represents a supply of 12.2 months at the current sales rate.

Note that the month over month data at 4.7% — plus or minus 18.3% — is statistically insignificant. (i.e., meaningless). The reported data does not inform us if sales improved month-over-month or not. It is a range, from down -13.6% to plus 23%. Since “zero” is part of that range, we can draw no conclusion. As the Census Department itself notes, “the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.”

The data does however, tell us that the year-over-year sales fell 41.1% plus or minus 7.9% gives us a range of -49% to -33.2%. The entire range is negative, therefore we can conclude sales fell year-over-year.

About Me

I have a pioneer mentality. My wife & I live in the woods - neighbors aren't visible except slightly in winter. Our "bunker" - hehe, really a fine home & barn - has plenty of security. We have four dogs: Krypto (age 9, Kelpie), Ava (age 13, Rat Terrier), Sky (Kelpie, age 5) and Lucky Star (age 1, kelpie). I don't take crap from anyone anymore, having enough resources & gear stocked up to survive in any circumstance.
I have three degrees from Harvard including a Ph. D. in a physical science, and an MS in Management from MIT. I worked as an investment banker for about 25 years, mainly in secured finance, at three major Wall Street firms and for the last 17 years with my partners at our own firm. I'm semi-retired now, managing some private corporations and business interests and doing my own trading & investing. This is not to boast, but to give you an idea I know a little about some subjects from experience.
The photo is my 1943 M16 half-track which I am restoring. These armored vehicles were ubiquitous in the US Army in World War II and Korea. It's driveable.